Red Flag, Yellow Flag
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Transcript of Red Flag, Yellow Flag
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Financial Analysis Using a Few
Calculations*
*But not many, and they’ll be pretty easy
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Financial Indicators
• Liquidity
• Capital structure
• Profitability
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
LiquidityThe ability to raise cash in
the short term
• Current ratio
• Days’ Cash• Days’ Receivables
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Current Ratio Current assets/Current liabilities
Suggests to what degree the organization has enough cash, or cash equivalents, to meet its immediate obligations
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Current Ratio for Youth Haven
$88,556/55,050 = 1.61
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Days’ CashCash & equivalents * 365
Operating Expenses - Depreciation
If an organization suddenly has to live off its cash accounts only -- no more cash is coming in -- how long will it survive if it continues to spend at its
usual daily rate?
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Days’ Cashfor Youth Haven
$35,539 * 365$553,152 - $12,453
=24
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Days’ ReceivablesAccounts receivable * 365
Operating RevenueFor organizations that provide services for a fee or hold government contracts, how long does it take, on average, to be
paid?
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Days’ Receivables for Youth Haven
$52,610 * 365$400,741
=48
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Capital StructureResources that have been put
into the organization by outsiders – “Sticky Money” • Debt to Net Assets • Accounting Age of Property, Plant and Equipment
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Debt to Net AssetsLong-term Liabilities
Net AssetsCompares the total amount of long term
debt to the total net assets (“net worth”) of the organization to see how much of the
latter could potentially be claimed by outside lenders.
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Debt to Net Assets
$201/$89,634= 0
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Suggests how well an organization keeps up its investment in tangible assets like computers, buildings,
vehicles, etc.
Accounting Age ofPlant, Property and
Equipment Accumulated Depreciation
Depreciation Expense
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Accounting Age ofPlant, Property and
Equipment
$65,134/$12,453=5.2
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
ProfitabilityRevenue - Expenses
Revenue
The famous “bottom line.”
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Profitability
$506,336-553,152/ $506,336=
(9.25%)
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Putting it All TogetherYouth Haven, Inc
Financial Statement Analysis
Liquidity 1999 1998Current ratio 1.61 3.39Days’ Cash 24 33Days’ Receivables 42 34
CapitalDebt to Net Assets 0 .03
Accounting Age 5.2 4.7
ProfitabilityTotal Margin -9.25% 3.08%
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Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin
Conclusion •Refer to the book for additional analyses and observations
•Think about what you would do in this situation
•Be sure to listen to the ‘Red Flag Yellow Flag’ talking presentation also on this CD
•Use the rest of the tools presented in the book – this is knowledge. This is empowerment
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